Falling prices, new extraction laws, iffy test well results cited Jim Lynch/ The Detroit News A run on Michigan's underground stores of natural gas, which once seemed a sure thing, may not be coming anytime soon — or at all. Just a year ago, Michigan appeared to be on the verge of a new era in natural gas exploration — one that would mean new investment and jobs in rural areas in dire need of both. Early returns from a test well near Lake City indicated that the Collingwood Shale — a reserve of underground natural gas that runs across the upper third of the Lower Peninsula — could be a productive source of the fuel. And a May 2010 auction of oil and gas rights on state land produced a whopping $178.4 million, mostly from companies looking to a profitable future. But somewhere along the way, that run on natural gas never materialized, and it seems unclear when, or if, it will. Dropping natural gas prices have been a major hurdle for the industry, with 2011 kicking off at $4.08 per cubic thousand feet — down from the $5.14 that began 2010. Declining performance from early test wells also has had companies waiting for more evidence. "The industry is trying to see what they can really get from Collingwood," said Hal Fitch, head of the Geological Survey Division at Michigan's Department of Environmental Quality. "The first two test wells that were drilled have not been real promising so far." Another key stumbling block has been increased scrutiny of natural gas extraction processes, particularly hydraulic fracturing or "fracking." By pumping a water/chemical mix — a "fracking fluid" — vertically into shale formations beneath the surface at high pressure, the rock structures are fractured, allowing natural gas to flow and be pumped back to the surface. Firms have found that by drilling much deeper vertically, then drilling several thousand additional feet horizontally and using more water, they can unleash natural gas that previously wasn't harvestable. The toxic ingredients included in fracking fluid, along with concerns over its potential to contaminate groundwater, have been the driving factors behind the increased concern. New regulations for the process have recently cropped up in a handful of states, including Michigan. In a few places, outright bans on fracking are getting serious consideration. That's precisely what Food & Water Watch — a national group that advocates for protections of food and water sources — called for on June 13. Some environmental groups want Michigan to hold off on issuing new permits until even stronger regulations are in place. Laying the groundwork Encana Corp., an energy company based in Calgary, Alberta, has done the real groundwork for the industry so far. The company is responsible for the test well at Lake City as well as another in Cheboygan County. This year, Encana is adding three wells — two are under construction — in an effort to determine if Collingwood can be a moneymaker And even if it is, the money may not be made from regular natural gas. "Low natural gas prices certainly weigh as a factor in determining whether the plat is economic or not," said Doug Hock, a company spokesman, in a written response to questions. "With oil and natural gas liquids commanding significant energy price premium over natural gas, we've sharpened our focus on oil- and natural gas-liquids production." Michigan has 18 active natural gas drilling permits in place for the Collingwood Shale, and another 12 are pending. That's a far cry from the heyday of the Antrim Shale — another natural gas deposit slightly north of the Collingwood Shale that was heavily mined in the late 1980s and 1990s. During that stretch, Fitch's office, which oversees mine permits, received 1,000 to 2,000 applications a year. New regulations in effect Michigan, Wyoming and Texas have recently passed regulations affecting companies seeking permission to use the hydraulic fracturing process. California and Pennsylvania are debating similar measures. In Michigan, the DEQ's new rules: Eliminate the exemption natural gas companies have on their use of large quantities of water. Require the disclosure of some elements of the chemicals in a company's fracking fluid. Require a public participation component during the permit approval process. Industry officials argue that the fracking process is safe when wells are constructed and operated as they are supposed to. Problems arise, they said, only when waste products are mishandled or wells are built incorrectly. Late last month, ExxonMobil Corp. Chief Executive Rex Tillerson was quoted in the Dallas Morning News newspaper defending the practice, saying public fears about groundwater contamination were unfounded and fanned by the media. But such dismissals have done little to quell calls for more regulation or even bans. A report released last week by Food & Water Watch argued: "Evenif the laws on the books were strengthened, fracking poses too severe a risk to public health and the environment to entrusteffective and rigorous regulatory oversight to (state) officials." Michigan environmental groups have challenged the state's new regulations on fracking as not being strong enough. One sticking point is that companies are not required to divulge exactly what they are pumping into the ground during the process. Trade secrets cited Companies, such as Encana, have successfully argued that what goes into their fracking fluid is a trade secret and therefore not something they have to disclose — even to the state agencies issuing them a permit. And while the latest regulations from Michigan's DEQ call for detailed records of water withdrawals and fracking operations, they do not require companies to divulge everything that's in the fracking fluid. State officials defended the rules, saying there is no evidence to suggest hydraulic fracturing is a risk that requires tighter restrictions. "If there were an environmental risk associated with this or any damage that has been shown to occur in the last 50 years … we'd have taken steps to address it from the word go," said Brad Wurfel, spokesman for the DEQ. Despite the lull in new drilling activity, conservation groups are still prepared for more fights. "I think it may have calmed down for the time being, but we're not viewing it as anything that has passed," said Anne Woiwode, director of the Sierra Club of Michigan. jlynch@detnews.com (313) 222-2034 From The Detroit News: http://detnews.com/article/20110620/METRO/106200360/Natural-gas-exploration-slows-down-in-Michigan#ixzz1Pn89qcuD

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